Written By: Janine Kick
The article is worth a quick read but let me give you the headlines:
- Early-stage venture firms must have some degree of focus. This is not to say they should only invest in one specific type of company in a particular industry, but funds must be able to articulate the handful of spaces they are trying to dominate (from a return perspective).
And here’s why…
- As software continues to enable the world, the diversity of startups expands – meaning the breadth of the problems startups are addressing, the markets they’re participating in, etc. An investor could not possibly hold evaluative criteria in their head for all startups.
- Founders are getting pickier about their lead investor (as they should be!) and want lead investors in place that can help them de-risk the path forward, i.e., industry relationships, deep experience being a lead investor, relevant industry pattern recognition, etc.
- Alpha products come from technical innovation (web3, climate, AI). It takes time to understand these technologies, and each of them brings its unique network. This requires investors to not only be *in* the networks but to understand them to see the best opportunities.
So, what does all of this mean as a Founder?
It means you must really understand and be comfortable with the ‘box’ your startup sits in. If you’ve worked with Kerosene, you’ve likely heard me go on a tangent at one point or another about really understanding and clarifying what box you sit in. It’s one of the biggest problems we see. Founders think they’re in one box, and investors think otherwise. You need to crystalize which box your startup is in and make it overtly apparent.
It also means your team, as ever, will become increasingly important. I believe this shift toward true technically-driven opportunities will require teams to have truly deep, intrinsic industry knowledge and technical capabilities. Being able to describe your technical moat will be imperative.
As funds begin to focus as First Round Capital has, founders need to do the same. There’s no denying the value of specialized knowledge on the founder or investor side of venture.
Kerosene Ventures: Helping Great Founders Raise Capital